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Statistically Speaking: Furniture Stores Continue to Slowly Lose Retail Presence

This decade began in the thick of what many refer to as the “Retail Apocalypse,” with a sharp decline of stores happening each year. While the pandemic has produced a surge in furniture purchases, many analysts predict online penetration will increase with no indications that retail store closures will slow. The number of brick-and-mortar retail stores (establishments) for all consumer products peaked for most entities between 1988 and 1991. As bigger corporations evolved, translating to fewer owners and bigger stores — coupled with rapid internet technology advancements — retail began to change and hasn’t looked back. Furniture and home furnishings stores are among the big casualties.

This article picks up from Statistically Speaking’s September 2019 article “Charting the Progress of Survival: Furniture and Home Furnishings Stores.” The heaviest decline in both furniture and home furnishings retail locations occurred between 2005 and 2010, which coincided with the Great Recession. The number of furniture store establishments dropped 12.1% in those five years, alongside a huge 21.7% drop in the number of firms (Graphic A) as smaller independent retailers were hard hit.

Following 2010, the number of furniture store establishments decreased an additional 18.0% over the next 10 years, finishing 2020 with 21,703 stores. The most recent data on firms (ownership) from 2018 show the number of firms recorded a 17.8% decline, down to 12,365, since 2010. While the number of furniture stores has continued to fall for the last 30+ years, home furnishings stores grew steadily until 2005. Economic pressure during the Great Recession, coupled with the rapid rise of electronic shopping, has taken its toll on brick-and-mortar home furnishings stores even more than furniture stores. Between 1990 and 2005, the number of establishments grew 15.1% but dropped by 18.5% down to 28,056 from 2005 to 2010. Over the last decade, the number of home furnishings stores fell another 13.2% to 24,348 (Graphic B).

The decline in the number of home furnishings store firms also began in 2005, decreasing by 19.6% in 2010, followed by an additional loss of 3,170 firms by 2018. The primary signal for the decline of independent furniture stores, with ownership of generally one or more local stores, is when data show the loss of furniture store firms (ownership) falls faster than net growth in store counts. Over less than 20 years, the number of furniture companies with primary operating ownership of one or more stores fell 37.6% and the number of brick-and-mortar stores declined by 21.3%. In 2014 and 2015, furniture store firms were hitting negative growth between 1.1% and 1.4%, respectively, while establishments showed slight increases. However, in 2016, stores started to decline alongside ownership by 1.7%.

Not surprisingly, employee growth began to decline by 2017 – decreasing 0.5% in 2017 and 1.1% in 2019 before the dramatic drop of 12.8% brought on by the pandemic in 2020 (Graphic C).

The pandemic has had a mixed impact among furniture stores, with federal stimulus propping up much of the brickand-mortar industry in the third quarter of last year and beyond. For 2019 through 2020 Q2, the industry had a net decline in stores five out of the six quarters (Graphic D).

The largest decline hit from 2019 Q2 to Q3, marking a net decrease of 255 stores. But with the consumer’s renewed interest in furniture and home furnishings during the pandemic, the third quarter of last year saw a net increase of 538 furniture establishments over the second quarter of 2020 and an increase of 380 stores over the third quarter of 2019. As shown in Graphic E, the pandemic was especially hard for home furnishings stores. Already faced with a steady net decline of store closings each year, last year resulted in a net decrease of 579 home furnishings establishments, preceded by 454 in 2019.

Furniture establishments fared slightly better after overcoming the hit in 2018 of a net decline of 387 stores. In comparison, 2020 only produced a net decrease of 86 furniture establishments. The furniture and home furnishing stores picture comes into focus when compared to other types of retail brick-andmortar stores also selling furniture. While furniture and home furnishings stores have continued to lose establishments, warehouse price clubs/supercenters and pure electronic shopping retailers have maintained positive growth rates. These average annual growth rates in five-year segments since 2000 is shown for select furniture retailers in Graphic F-1.

Other key brick-and-mortar retail stores have also been in decline for decades, feeling the pressure from warehouse price clubs and supercenters, but especially from electronic shopping retailers. Table F-2 shows a select group, with office supplies/ stationary/gift stores and department stores experiencing the largest net declines. Smaller independent furniture stores have felt a majority of the brunt from retail consolidation, but larger chains have also gone by the wayside. The rapid growth of electronic shopping and online retailers throughout the last 20 years has added significantly to the brick-andmortar crisis.

And it seems the pandemic may have further strengthened the relationship between the consumer and the internet. Brick-and-mortar furniture stores celebrated record sales in the third and fourth quarters of last year. And for the first two months of 2021 sales are up 13.1% over 2020 (Graphic G).

The rain cloud that persists is that while consumer spending for furniture has catapulted to 23.8% in January/February over the same two months last year, furniture stores have increased sales but lost market share. The gap between furniture store sales and total consumer spending on furniture has continued to widened. In 2014, furniture store sales of $53 billion represented about 57.5% of total consumer spending on furniture. Last year, that ratio had fallen to 42.5% (Graphic H). The Census Bureau and Department of Commerce reported $60 billion in furniture store sales last year compared to $141 billion total consumer spending on furniture and bedding.

As shown in Graphic I, the annual growth of furniture store sales began to decline in 2019 (-0.2%), followed by a 2.4% decrease in 2020. Meanwhile, consumer spending on furniture has continually shown positive growth every year since the end of the Great Recession and finished 2020 with an annual growth of 7.9%. What remains to be seen for the future of brick-and-mortar furniture stores is whether the momentum of the consumer’s interest in their homes can help furniture stores counteract the internet’s pull and last long enough to keep these stores and other furniture and home furnishings establishments in business.

Editor’s Note: Is it Safe to Come Out?

Well, it’s over. The store is still standing, and the consumer is ready to buy. Close rates are up more than 20% with less traffic, but an increased average ticket. However, there is not time to enjoy the rebound due to multiple hurdles in the way. First is product shortage, as manufacturers cope with their own unique challenges caused by the pandemic. Retailers are forced to commit to orders through the end of the year, introducing additional risk.

Personnel shortages are occurring with tenured, critical employees deciding it is time to retire. Many retail sales associates, already frustrated with product deliveries, are handling equally frustrated consumers and are leaving with the stress of added workloads. While there appears to be some reasons for hope in eliminating COVID-19, the remnants remain: “mask vs. no mask”, required vaccinations, and an endless series of new employee relations decisions. What lingers is the feeling that it could all happen again. Maybe PTSD does exist from the disruption caused by the pandemic.

While many checking accounts are bulging with customer deposits, the recently released stimulus checks can continue the demand for furniture. The positive forecast shown in Table A affirms the possible growth. Still there is trepidation and not wanting to return to the “cellar”.

Cover Story: Competitive Battlefield Is it Time to Begin Again?

However, traditional retailers soon realized it was not a level playing field. First, being designated as “non-essential retailers” forced many to resort to selling by appointment, essentially entering the store via the side door. At the same time, other furniture retailers that had appliances in their merchandise assortment continued with business as usual. Many retailers reacted by adding a few appliances to their mix to game the system and remain open.

Already carrying some furniture, mass merchants and home improvement stores expanded their assortment to meet significant demand from customers. After experiencing the gross margin potential, these retailers are now committed to the furniture category. A major question for traditional furniture retailers is, how were mass merchants and home furniture stores able to source products so easily?

Even before the pandemic, general merchandise stores such as Big Lots were venturing into furniture. Armed with the Broyhill brand, sales exploded up to a reported $400 million in the first year and forecasted to be a billion dollar contributor in the next few years. Based on the financials, Big Lots’ commitment to furniture will continue with other “value retailers” to follow.

And then there was e-commerce. While confined to the home, traditional retailers watched as delivery trucks went to neighbors to deliver that must-have new recliner. Without a doubt, the traditional furniture segment did not get their share of the home furnishings boom. In fact, many were lucky to reach 2019 levels. While written sales exploded, the lack of product resulted in significant backlogs. Graph B shows the comparison.

By year-end equilibrium appeared to be restored, but continued supply chain issues still plague the industry. The thought is whether all channels will be impacted the same.

Over the last several years, industry focus has been on the competition within the traditional furniture retail sector. While the threat of e-commerce has been recognized, the prevailing thought was the level of penetration would level off as did with the 1-800 retailers of the 1980s. Ultimately, the threat of retailers such as Blackwelders, Roses and others finally disappeared. Only Furnitureland South remains with a substantial regional presence, but it still has remnants of the 1-800 model.

The enforcement of sales tax laws and physical purchase presence dampened the growth. However, just as important in the decline was that local retailers recognized the retail experience delivered by the new model was what consumers wanted. Definitely there was a price differential, but to paraphrase one of those local retailers:

The imposition of sales taxes for e-tailers has slowed the growth of e-commerce. However, the consumer still wants the convenience of anytime shopping, the range of selection, and the availability to get knowledgeable assistance through chat features.

We cannot dismiss the digital challenges furniture and other consumer products must accept and join. Twenty years ago, e-commerce retailers were still in their infancy. In 1999, only one major consumer product, clothing (including footwear) posted over $1 billion dollars. By contrast, only $350 million was sold for furniture and home furnishings.

As with the death of the Great Recession, we can only surmise that the pandemic will cause a similar growth. The largest furniture e-tailer Wayfair posted revenue of $14.1 billion in 2020, up 55% from the previous year. More troubling is the jump of 34% in Wayfair’s customer base to 20.3 million. No longer can the industry say Wayfair is not profitable, as they now have a net income of $185 million.

However, it is not only the e-commerce distribution channel that is eroding the traditional furniture retail sector. In the 1970s, brick and mortar furniture stores controlled more than 70% of sales, sharing with department stores and mass merchants like Sears, JCPenney, and Montgomery Ward. These mass merchants have disappeared from furniture and department stores and are struggling to find their place in the product category. Furniture stores, those that derive at least 70% of their revenue from furniture and bedding now attract 42% of the consumer expenditures. Graph D presents the historical data.

We have estimated that e-commerce represents $84 billion, so where does the other $127 billion reside? The lifestyle stores with both Retail Verticals such as Restoration Hardware (RH) and Manufacturer Verticals such as Bassett are a significant presence, primarily in the upper/premium price points. This retail sector represents $8.7 billion in sales (Figure 1).

However, this sector has embraced the omnichannel experience with a balance between online and brick and mortar. Due to the pandemic many retailers in this sector were forced to close stores. The projection is that many of these stores will never reopen, accelerating the move to e-commerce. The vertical manufacturers are an important part of this retail sector with the largest participant being Ashley Furniture. The company just passed the 1,000 store marker and has estimated sales of $5.5 billion (Figure 2).

Emerging in this sector, are small startup manufacturers that are bypassing both brick and mortar and e-tailers by selling direct to the consumers. Attracting the attention of venture capitalists, these new industry participants could become the disruptors of the next decade. The traditional furniture stores represent over $110 billion in sales and are segmented into Regional Chains, retailers that have a presence in multiple states; Large Independents, retailers serving multiple markets in the same state; and finally, the Independents, retailers serving one or more markets but earning less than $50 million in sales. While these retailers still represent a significant portion of the traditional furniture stores, they are declining.

The regional chains have been in a growth mode for the last decade. For early regional chains: Havertys in the South, Raymour and Flanigan in the Northeast and Rooms To Go on the East Coast, expansion has slowed while others have picked up the pace. Fueled by real estate made available from the demise of some big box retailers, large independents have expanded. Regional chains control $ 17.1 billion of the total market and 43.2% of the furniture store sector. While significant, the regional coverage is short of national retailers. Out of all 404 markets (MSAs), only the promotional/middle retailers approach a third of the total markets (Figure 3).

There are some regional retailers content to remain within state boundaries. However, through expansion or acquisition many of these retailers will become regional chains in the near future. These retailers represent $3.7 billion of the total market (Figure 4). It should be noted a number of these large independents are in Florida. While a large state, many of the markets are getting very competitive.

While the pandemic put a halt on expansion plans, projects already underway continued and many traditional retailers expanded their footprint in 2019/2020 as Figure 5 quantifies. As expected, many of these expansions did not increase market share. How will 2021 translate into expansion among an abundance of retail space? Caution should be encouraged as all retail is exploring omnichannel distribution as a dominant expansion strategy. Furniture industry beware.

What Sells: Dining Room Rebirth

According to John Miranda, executive vice president at Jofran Inc., “As people are making the change to work from home and distance learning the demand for casual dining has increased. Families are looking for solutions to their newfound working and learning environment. By replacing their old tables with a larger one or something with built-in storage, it is allowing them to be more productive and efficient.” Other manufacturers agree. Cindy Shockey, Simply Amish furniture designer and sales representative says, “The demand for a more casual, yet highly practical, living space is on the rise as consumers want to truly live in and experience all parts of their home. Gone are the days of creating rooms that are too formal to be used or that are only used on special occasions. And yet, we want our spaces to feel unique and timeless. Practical and timeless do not have to mean that design or style take a back seat, quite the opposite.”

During the twentieth century, dining rooms became a part of the home where many Americans invested most of the decorating dollars - furnishing the room with chandeliers, large tables, and sideboards filled with expensive crystal, china, and silver. With the influx of open floor plans across the country, the defined dining room had all but disappeared. Now in the midst of COVID 19, the dining room’s appeal has reemerged as a place to both share meals and conduct daily life. And proof is the uptick in sales.

Versatility and variety is driving current bestsellers’ success. Don Montgomery, vice president of sales for Emerald Home Furnishings says, “Our best-selling table options in both size and application answer the basic questions for every consumer looking to update their dining area….will it fit where I want to use it? Soft finishes complimented by rich, dark tones addresses the second question…is it the right color? And finally, once in the home, our product establishes the buyer as a discerning shopper who appreciates a quality product.”

According to a FurnitureCore, Inc. industry model developed by Impact Consulting Services, parent company to Home Furnishings Business, dining room industry sales have jumped from $11.5 million in 2019 to $12.5 Million in 2020 — an increase of 9.2% and $46.2 million above the total 8.8% furniture growth for the entire industry. While dining room furniture sales growth was stagnant in the second quarter of 2020, due to stay-at-home orders and buyer uncertainty, sales rebounded by 16.6% in the third quarter and 12.8% in the final quarter of last year. Expect this category to continue to evolve as consumers look to create more functional space within every room.

Statistically Speaking: Omnichannel Brick and Mortar Stores Play Catchup to Pure Play E-commerce

However, it was not until around 2005 when online shopping kicked into high gear only to get stymied by the Great Recession. It was five more years in 2010 when e-commerce retailers, identified as those whose primary business activity is in furniture and home furnishings, really took off. But even then, it took until 2014 for brick-and-mortar furniture stores to fully realize how rapidly they were losing ground. At that same time, Wayfair, with its subsidiaries, went public and other furniture and home furnishings e-tailers began to flood the marketplace. E-commerce sales grew swiftly until last year when the pandemic accelerated growth even faster with online furniture and home furnishings sales reaching an estimated $97 billion in 2020 (Table A).

In this feature, we explore how e-commerce retailers with furniture and home furnishings as their primary business activity have impacted brick and mortar stores and how these traditional retailers are attempting to slowly catch up. Furniture and home furnishings retailers are now divided by the Census Bureau into three categories –

(1) Traditional brick and mortar stores, where e-commerce sales, if any, are fulfilled from within the store or a common distribution center,

(2) Omnichannel stores which are larger retail chains with separate brick and mortar and e-commerce operations, and

(3) Pure Play stores that are online retailers with no brick-and-mortar presence and who only operate online.

Note, that some Pure Play retailers are opening brick and mortar stores, primarily as clearance stores. Also note that the old mail-order category is becoming a grey area and is generally incorporated into e-commerce sales as most transactions are online.

As shown in Table B, e-commerce sales from omnichannel brick and mortar stores reached $14 billion in e-commerce furniture and home furnishings sales in 2020 – gaining a share of 7% of total furniture and home furnishings sales. However, the competition of Pure Play e-commerce now makes up 40% of the total industry with $84 billion in sales. While still the majority share at 52%, store front sales are quickly losing ground to online retailers. Store front sales (non e-commerce) had small but positive growth from 2017 through the first two months of 2020 before the pandemic resulted in a drop of 5.6% for the year (Table C).

After e-commerce sales increases above 20% in 2017 and 2018, traditional smaller brick and mortar retailers experienced a large downturn in sales in 2019 of 17.5% most likely the result of either retailers crossing over from traditional brick and mortar stores into the omnichannel or smaller traditional retailers unable to grow their online businesses. Omnichannel brick and mortar store sales catapulted 47.7% in 2020 after annual steady growth between 11% and 13% from 2017 to 2019. A few pure play retailers are sticking their toes in the omnichannel category, opening mostly brick and mortar clearance centers for now. Sales growth among pure play retailers has remained consistently high since 2017 with 2020 growth at 29.2%.

Over the last four years the gap has widened between pure play e-commerce sales and omnichannel brick and mortar sales among furniture and home furnishings stores (Table D). While store front sales are down from $111.4 billion in 2017 to $109.6 billion in 2020, pure play e-commerce sales have almost doubled – increasing by $40 billion.

Brick and mortar omnichannel retail sales have also almost doubled 2017 to 2020 to $13.9 billion. Pure play e-commerce retailers have grown from contributing 27.3% of total furniture and home furnishings sales in 2017 to 40.1% in 2020. While omnichannel retailers keep increasing their share of total sales – finishing 2020 at 6.6%, the growth from 2019 to 2020 was 1.7 percentage points compared to the pure play e-commerce category’s increase of 6.6% (Table E).

Looking only at e-commerce sales, when it is all said and done, omnichannel retailers have made little headway in cutting into the market share of the pure play furniture and home furnishings retailers. In 2017, omnichannel businesses controlled 13.7% of e-commerce sales and in 2020, 13.9% (Table F).

The internet’s impact on brick and mortar furniture and home furnishing store sales last year cannot be overstated. Wayfair alone acquired five million new customers in just three months, something that normally takes a year to achieve. Despite the pandemic and all its restrictions, Wayfair fulfilled nearly 19 million orders in the second quarter – a 106% increase from the same quarter a year ago. Brick and mortar companies that have successfully transitioned into omnichannel retailers with dedicated e-commerce business models have made progress in keeping up with pure play growth but have gained little market share away from them.

What is unclear in the data is how store front sales have grown within the omnichannel compared to their e-commerce activity. Many smaller traditional retailers are without resources to enter the e-commerce marketplace with any conviction and, in many cases, are facing dire circumstances just trying to keep the doors open.

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